Pfizer Can Break Out Soon

| About: Pfizer Inc. (PFE)

Summary

Pfizer is lagging its industry, and it is this premise that makes me believe the stock has some room to catch up.

I like the play right now because investors have been seeing a little bit of revenue growth over the past year.

This is still a relatively inexpensive name, as it is trading around 14x next year's earnings estimates.

Last week was a huge one for the earnings season because all the technology heavyweights reported, but this week is not going to be light either. Dow heavyweights such as Procter & Gamble (NYSE:PG) and Pfizer (NYSE:PFE) were all set to report this past week. It was a consumer goods and media earnings coverage type of week, as all the big names in each industry were reporting. But the name I want to focus on the most is Pfizer.

We have seen healthcare stocks move higher of late, and in the past month, the iShares Dow Jones US Pharma Index ETF (NYSEARCA:IHE) has moved up to the tune of 6.9%, while the broader market as measured by the S&P 500 has only moved up 2.9%. Pfizer, which makes up roughly 8.4% of the IHE and has the most bearing on the ETF, has moved to the tune of -1.2% over the past month. There are obviously other names in the fund which are moving it, because Pfizer is lagging it, and it is this premise that makes me believe the stock has some room to catch up.

Pfizer is the second-largest major drug manufacturer in the world. It has been a laggard in its industry for quite some time, and has been trying to play catch-up. Over the past year, the company tried to make a transformative acquisition by making a bid for Allergan (NYSE:AGN), but that has failed. I like the play right now because investors have been seeing a little bit of revenue growth over the past year.

From the table below, we see that overall revenues grew 11% from the second quarter of last year, which is pretty phenomenal considering what the company rakes in on a quarterly basis already. The 11% top line growth was aided with 16% growth from the Essential Health business segment, which carries all the legacy products. But the main reason for the revenue growth was because SIP products nearly doubled! However, the SIP revenues cannot continue to double like this - it was merely due to the consolidation of the Hospira revenues the company acquired. The key driver for revenues to keep climbing will be the oncology segment of the company, as it continues to focus on developing the pipeline, starting with the newly approved breast cancer drug Ibrance.

(millions of dollars) 2Q16 2Q15 % Change
Total Revenues $13,147 $11,853 11%
Pfizer Innovative Health $7,105 $6,630 7%
Internal Medicine $2,190 $1,895 16%
Vaccines $1,365 $1,580 -14%
Oncology $1,101 $713 54%
Inflammation & Immunology $999 $966 3%
Rare Disease $614 $636 -3%
Consumer Healthcare $837 $840 N/A
Pfizer Essential Health $6,042 $5,223 16%
Legacy Established Products $2,864 $2,934 -2%
Sterile Injectable Pharmaceuticals $1,497 $751 99%
Peri-LOE Products $1,111 $1,406 -21%
Infusion Systems $295 N/A N/A
Biosimilars $78 N/A N/A
Pfizer CentreOne $196 $133 47%
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I bought a $37 strike call with the September expiration time frame. As a potential Pfizer investor, I am kind of happy that the Allergan (AGN) deal fell through, because I think nobody knew what was in it. Pfizer still does have some patent issues, of course, but the company is trying to supplement that dilemma by growing the oncology portion of the segment revenues through drug discovery and acquisitions. Equally as important to the company increasing its revenues is that it is expected to increase its earnings per share 7.4% over the coming year and, on average, 7.1% over the coming five years. This is still a relatively inexpensive name, as it is trading around 14x next year's earnings estimates. Though this may be a slow-moving name, I think it is worth a look, and I am going to do so with options.

From the table I have provided below, you can see the stock is below all the average peer valuation metrics that I look for when making an investment. The company also distributes a quarterly dividend which equates to about a 3.3% yield at the current stock price, making it a defensive name. With at least 7% earnings growth for the coming year, coupled with a 3% dividend yield, investors can't ask for much more out of a slow-moving fossil such as this.

Company

Ticker

P/E

Fwd P/E

PEG

P/S

P/B

P/C

P/FCF

AbbVie Inc.

ABBV

19.8

11.8

1.2

4.5

23.1

12.5

25.9

AstraZeneca PLC

AZN

29.6

15.2

-

3.5

5.9

21.1

-

Bristol-Myers Squibb Company

BMY

79.9

23.1

3.4

7.4

8.7

29.0

-

GlaxoSmithKline plc

GSK

135.8

17.2

226.3

3.3

29.5

18.2

-

Johnson & Johnson

JNJ

23.3

17.6

3.6

4.9

4.7

-

-

Eli Lilly and Company

LLY

38.0

20.7

3.2

4.5

5.9

30.1

-

Merck & Co. Inc.

MRK

35.9

15.7

7.0

4.1

3.7

12.6

28.0

Novartis AG

NVS

30.1

16.3

4.9

4.4

2.7

-

109.7

Pfizer Inc.

PFE

30.2

14.0

4.3

4.5

3.6

11.7

-

Shire plc

SHPG

28.8

13.0

2.2

8.8

3.7

845.0

-

Sanofi

SNY

22.9

13.5

3.2

2.9

1.7

-

-

Min.

19.8

11.8

1.2

2.9

1.7

11.7

25.9

Max.

135.8

23.1

226.3

8.8

29.5

845.0

109.7

Avg.

43.1

16.2

25.9

4.8

8.5

122.5

54.5

Median

30.1

15.7

3.5

4.5

4.7

19.7

28.0

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On a fundamental basis, the stock trades a relatively inexpensive valuation because it just does not have the same kind of bottom line growth that its peers do. In fact, as you can see in the table below, Pfizer is below average on future earnings growth expectations and past earnings growth. With Pfizer, an investor is not paying up for earnings growth from a P/E perspective, but instead, they are paying for a lower P/E for safety and a dividend through volatile times. Thank you for reading, and I look forward to your comments.

No. Ticker EPS Next Yr EPS Past 5 Yrs EPS Next 5 Yrs Sales Past 5 Yrs
AbbVie Inc. ABBV 18.10% 3.50% 16.03% 7.90%
AstraZeneca PLC AZN -4.50% -16.70% -1.00% -5.80%
Bristol-Myers Squibb Company BMY 25.56% -12.20% 23.34% -3.20%
GlaxoSmithKline plc GSK 15.89% 40.20% 10.00% -3.40%
Johnson & Johnson JNJ 6.25% 2.80% 6.52% 2.60%
Eli Lilly and Company LLY 14.04% -13.20% 12.95% -2.90%
Merck & Co. Inc. MRK 0.78% 41.50% 5.21% -3.00%
Novartis AG NVS 6.93% -7.50% 6.17% -0.50%
Pfizer Inc. PFE 7.27% 1.60% 7.09% -5.60%
Shire plc SHPG 19.25% 16.50% 16.50% 13.10%
Sanofi SNY -0.97% -4.40% 7.40% 0.50%
Min. -4.50% -16.70% -1.00% -5.80%
Max. 25.56% 41.50% 23.34% 13.10%
Avg. 9.87% 4.74% 10.02% -0.03%
Median 7.27% 1.60% 7.40% -2.90%
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Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.